URBANA-CHAMPAIGN, ILLINOIS, US — The two foremost issues confronting US exporters of agricultural products in the coming months are whether China meets its purchase commitments under the phase one trade agreement and what effect the coronavirus (COVID-19) pandemic will have on world trade, Joe Glauber, PhD, senior research fellow at the International Food Research Institute, said during a farmdoc webinar on April 28.
Glauber, who before joining IFPRI was a 30-year veteran of the US Department of Agriculture and most recently was its chief economist, said he doubted China will be able to fulfill its purchase commitments in the current year and even may fall short of the phase one agreement’s 2017 baseline of $24 billion.
The impact of the COVID-19 pandemic on world agricultural trade was uncertain, but the World Trade Organization has made initial forecasts for world gross domestic product and global trade, including trade in agricultural and processed foods, for 2020 and 2021 that take into consideration effects of the pandemic under three different economic recovery scenarios, Glauber said.
The last couple of years have been wild ones in the history of US-China trade relations, Glauber noted. No sooner had the trade war been initiated in 2018 and conversations to address disputes begun than the African swine fever took hold in China and decimated its hog herd. That raised the question of what the Chinese market would look like once an agreement was reached. Then, in January of this year, COVID-19 gripped China and significantly slowed its growth.
The phase one agreement promised a sharp increase in US farm exports to China. Chapter three of the agreement resolved many non-tariff barriers that had stymied efforts to export US poultry, beef, dairy and pork to China. Also embedded in the agreement were results of two World Trade Organization wins for the United States. A WTO panel agreed with the United States that China provided excessive support to its wheat, corn and rice farmers. The WTO also ruled that China must abide by tariff rate quotas on wheat, corn and rice it established under its 2000 accession agreement.
In the phase one agreement, China also agreed to streamline the process for approving biotech traits in corn. Its earlier refusal to do so had shut off US corn exports to China.
Chapter six of the agreement contained China’s commitment to sharply increase imports of US agricultural products from an agreed 2017 (pre-trade war) baseline of $24 billion.
China agreed to purchase $36.5 billion in US agricultural products in 2020 ($12.5 billion above the 2017 baseline) and $43.5 billion in US agricultural products in 2021 ($19.5 billion above the 2017 baseline).
There were conditions, though, Glauber noted. Purchases would be made at market prices based on commercial considerations, and that market conditions may dictate the timing of purchases. In other words, China indicated it would buy products when the price was right and that it would not necessarily discriminate against other suppliers.
China recently said the value of its US agricultural imports in January-March 2020 was about $5 billion. Glauber said China would have to double this level of imports in each of the next three quarters to approach its commitment of $36.5 billion for 2020.
Glauber said there have been encouraging sales of US pork, cotton, wheat, corn and sorghum to China, but that the pace of sales has been very slow. He noted there also have been recent Chinese purchases of US soybeans, but he added China wasn’t likely to begin buying US soybeans in significant volumes until late summer. Until then, Brazil was expected to be China’s primary source for soybeans.
Glauber said he doubted whether China would meet its 2020 commitment and suggested if the pace of its purchases doesn’t accelerate, it may even fall short of the $24 billion 2017 baseline.
The impact of COVID-19 on agricultural trade was uncertain. Much depends on how long world economies will be slowed and how quickly they might recover, Glauber said.
Turning to the Great Recession of 2008 for comparison, Glauber noted agricultural trade did not fare nearly as poorly as did trade in manufactures or in fuel and mining products.
Glauber pointed to trade data for 2008 and 2009. The overall decline in global trade in agricultural products to 2009 from 2008 was 12.1% in terms of value and 1.8% in volume. In comparison, the 2009 global trade in fuel and mining products dropped 35.8% in value and 5.4% in volume from 2008. And 2009 global trade in manufactures declined 19.9% in value and 15.3% in volume compared with 2008.
The narrow decline in trade volume in agricultural products in 2009 from 2008 reflected the truth that no matter what else happens in trade and economies, people have to eat, Glauber said. The relatively large decline in the value of world agriculture trade in 2009 reflected in good measure lower prices in view of an increase in global supply of grain and oilseeds that year following two years of excruciatingly tight supplies.
The WTO recently forecast the global impacts on GDP and trade under three scenarios, Glauber pointed out. The first considered a V-shaped economic recovery from the pandemic, which entailed a large percentage of workers staying at or working from home for three months and then returning to work. Under this scenario, global GDP was forecast to decline 4.8% in 2020 but rebound 4.2% in 2021.
The second scenario was a U-shaped recovery in which much of the workforce stayed at or worked from home for six months. In this case, global GDP was forecast to drop 9.2% in 2020 but rebound 8.1% in 2021.
The third scenario was an L-shaped recovery involving much of the workforce remaining at or working from home for 12 months. In this case, global GDP was forecast to drop 11.1% in 2020 and rebound a weak 2.8% in 2021.
Glauber said the WTO also forecast the impact of COVID-19 on global trade in 2020 under the three recovery scenarios as follows:
Agricultural products trade in 2020, in value, would drop 6.5% in a V-shaped recovery, 11.2% in a U-shaped recovery and 12.7% in an L-shaped recovery.
The value of processed food trade in 2020 was forecast to drop 7.4% in a V-shaped recovery, 12.6% in a U-shaped recovery and 13.4% in an L-shaped recovery.
In comparison, the value of manufactured goods trade in 2020 was forecast to drop 8.2% in a V-shaped recovery, 20.7% in a U-shaped recovery and 30% in an L-shaped recovery.
The value of all global trade in 2020 was forecast to drop 8.1% in a V-shaped recovery, 16.5% in a U-shaped recovery and 20.4% in an L-shaped recovery.
Glauber said current thinking is that a V-shaped recovery was too optimistic and out of reach, and that a U-shaped recovery was more likely.
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